Fossil energy dies hard. The energy companies have made billions and have had lots of power for decades and they don’t want to give up even though the easy resources are exhausted. One of the most recent purported saviors is oil and gas in the Arctic. We are promised billions of barrels of oil but will the world economy be able to pay the price for that oil? Probably not. The Arctic National Wildlife Refuge has been a political football for more than a decade. The reality is the major oil companies wanted it only as part of a package deal that would allow them to drill off the Pacific and Atlantic coasts. They were aware that the could not economically produce oil from the region. The rest of the Arctic is no different.
New Estimates for Drilling Costs
Two complete failures and one aborted test drill — a miserable outcome. When Scottish company Cairn Energy published the preliminary results of its search for oil off the coast of Greenland last October, the firm’s share price plunged 7 percent in one day. Its findings revealed not a trace of black gold. On the contrary: the company said it would have to write off costs totalling €180 million ($246 million).
That’s right – a quarter of a billion dollars for a dry hole. But even if they discover oil it doesn’t help if no one can afford it. Somewhere between $100 and $120 a barrel the cost becomes more than our world economy can afford. Even at $80 a barrel it became uneconomical to ship scrap to China and then ship steel back to the United States. The US steel industry made a come back. As the price of oil increases we will see more and more products where our current import/export model is no longer economical. Our current agricultural system is dependent on cheap fossil fuels. As the price of oil has increased we have seen double digit increases in the price of food. This is in part responsible for the civil unrest we have seen around the world. Of course the climate change that is at least in part the result of burning fossil fuels has also played a part. So assuming the magic number is $100 to $120 what does that say about Artic oil?
Scientists had previously estimated that the region could yield some 7.5 billion barrels of oil — 1.2 trillion liters. But statistically, the likelihood of producing that amount is the same as failing to find even a drop. However, the geology of the area is interesting — after all, on the other side of the Greenland Sea, along Norway’s west coast, there are attractive oil reserves that have been bringing in billions of euros for the Norwegian government for decades. Greenland is hoping for a similar boom.
But the amount of oil that can actually be pumped out of this region is likely to be significantly lower than previous estimates indicated, according to the latest findings. Assuming production costs of up to $100 per barrel, only 2.5 billion barrels of oil could be lifted, according to the USGS calculations — and only with a 50 percent probability.
In order to reach further reserves, companies would have to spend much more. Even based on outlandish exploitation costs of $300 per barrel, only 4.1 billion barrels could be raised, with the same 50 percent probability. “And that is before paying a cent of tax or making any profit,” says Gautier.
So there is a 50 percent possibility of finding oil that no one can afford. Perhaps that’s why the only major looking at the Arctic is BP which depends on excessive risk taking to make a profit.
Even if the technology can be developed to extract the Arctic resources they aren’t developed yet and it will be years if not decades before we see a drop of oil from this area. The world economy will have been forced to wean itself from fossil fuels for transportation long before that.
Cross posted at Newshoggers